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The application of EU merger control clarified: no EC notification required for non-full function joint ventures

13.09.2017
EU

In the first ever preliminary rulingon the EU merger control regime, the Court of Justice of the European Union ("CJEU") brought much needed clarity on whether the shift from sole control to joint control in an existing undertaking is covered by the EU Merger Regulation, when the entity does not function autonomously on the market. Following the opinion of Advocate-General Kokott, the CJEU ruled that such a change is not covered by the EU Merger Regulation and therefore does not require prior examination by the European Commission.

Ruling triggered by Austrian notification

The issue arose when road construction company Austria Asphalt notified the Austrian Federal Competition Authority of its intention to acquire 50% of the shares in an asphalt mixing plant. At the time, the asphalt mixing plant in question was solely owned by Teerag Asdag, another road construction company. The envisaged transaction would turn the asphalt mixing plant into a 50/50 joint venture, over which both Teerag Asdag and Austria Asphalt would exercise joint control. Given that the production of the asphalt mixing plant would almost exclusively be used by its shareholders, the joint venture would not act autonomously on the market.

After having notified this transaction to the Austrian Federal Competition Authority, it was subsequently referred to the Austrian Cartel Court for an in-depth review. However, the Austrian Cartel Court determined that it had no jurisdiction over the matter since the notified transaction constituted a concentration with an EU dimension. Austria Asphalt appealed this decision to the Austrian Supreme Court, referring to a (non-binding) letter from the Commission which stated that the intended transaction did not constitute a concentration within the meaning of the EU Merger Regulation. The Austrian Supreme Court, in turn, asked the CJEU for a preliminary ruling on whether the EU Merger Regulation should be interpreted as such that only a shift from sole control to joint control of an existing undertaking, where the undertaking is acting autonomously on the market, constitutes a concentration.

The CJEU confirmed that the text of the EU Merger Regulation did not permit for its precise scope to be assessed. Therefore, it had to be interpreted by reference to its purpose and general structure. From this, it is apparent that, under the EU Merger Regulation, the concept of concentration must be defined in such a manner as to cover those transactions bringing about lasting change in the structure of the market. Thus, joint ventures that perform all the functions of an autonomous economic entity should fall within the scope of the EU Merger Regulation, and joint ventures which do not perform all these functions should not. With its ruling, the CJEU clarifies the ambiguity in the wording of the EU Merger Regulation. Additionally, the CJEU held that for purposes of analysis, no distinction should be made between new non-full function joint ventures and existing non-full function joint ventures.

This ruling is of particular importance since, in the past and throughout the case, the Commission wavered on the interpretation of the EU Merger Regulation. Initially, the Commission indicated to Austria Asphalt that the transaction did not meet the criteria of a concentration. Then, in the course of CJEU proceedings, the Commission argued that the lasting change of control in existing joint ventures is always covered by the EU Merger Regulation, irrespective of whether the undertaking is full-function. The Commission stated that any other interpretation would leave a gap in its enforcement of the EU merger control regime. The CJEU disagreed and instead ruled that such interpretation would effectively extend the scope of preventative control laid down in the EU Merger Regulation.

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